STRATEGIC MANAGEMENT

UNIT – V
OTHER STRATEGIC ISSUES:
STRATEGIC ISSUES IN MANAGING TECHNOLOGY AND INNOVATION
In this age of hyper competition and innovation, management of technology plays a crucial role.
Innovation is the major driver of companies for creation of value.
a) The Role of Management: Due to increased competition and accelerated product development
cycles, innovation and the management of technology are becoming crucial to corporate success.
New product development is positively associated with corporate performance. Approximately half
the profits of all U.S. companies come from products launched in the previous 10 years. What is less
obvious is how a company can generate a significant return from investment in R&D as well as an
overall sense of enthusiasm for innovative behavior and risk-taking. One way is to include
innovation in the corporation‘s mission statement.
Eg. Intel: ―Delight our customers, employees, and shareholders by relentlessly delivering the
platform and technology advancements that become essential to the way we work and live.‖
Another way is by establishing policies that support the innovative process. If top management and
the board are not interested in these topics, managers below them tend to echo their lack of interest.
b) Environmental Scanning: Issues in innovation and technology influence both external and internal
environmental scanning.
(i) External Scanning
Corporations need to continually scan their external societal and tack environment for new
development in technology that may have some application to their current or potential products.
This is external scanning.
 Impact of Stakeholders on Innovation
A company should look to its stakeholders, especially its customers, suppliers, and distributors, for
sources of product and service improvements. These groups of people have the most to gain from
innovative new products or services. Under certain circumstances, they may propose new directions
for product development. Some of the methods of gathering information from key stakeholders are
using lead users, market research, and new product experimentation.
 Technological Developments
A company‘s focusing its scanning efforts too closely on its current product line is dangerous. Most
new developments that threaten existing business practices and technologies do not come from
existing competitors or even from within traditional industries. A new technology that can substitute
for an existing technology at a lower cost and provide higher quality can change the very basis for
competition in an industry. Managers therefore need to actively scan the periphery for new product
ideas because this is where breakthrough innovations will be found.
(ii) Internal Scanning
Strategists should assess how well company resources are internally allocated and evaluate the
organization‘s ability to develop and transfer new technology in a timely manner to generate
innovative products and services.
 Research allocation issues –The company must make available the resources necessary for research
and development.
 Time to market issues – In addition to money another improvement consideration in the effective
management of R&D is time to market. It is an important issue because 60% of patented innovations
are generally imitated with in 4 years at 65% of the cost of innovation.
c) Strategy Formulation
R&D strategy deals not only with the decision to be a leader or a follower in terms of technology and
market entry but also with the source of the technology.
(i) Technology sourcing – a make or buy decision can be important in a firm‘s R&D strategy. There are
two methods for acquiring technology, namely in house R&D is an important source of technical
knowledge. Firms that are unable to finance alone the huge cost of developing a new technology may
coronate their R&D with other firms through a strategic R&D alliance.
(ii) Technology competence – R&D creates a capacity in a firm to assimilate and exploit new knowledge.
This is absorptive capacity. Technology competence is to make good use of the innovative
 technology purchased by a firm.
d) Strategy implementation
If a corporate decides to develop innovations internally, it must make sure that its corporate system
and culture are suitable for such a strategy. It must establish procedures to support all six stages of
new product development [idea generation, concept evaluation, preliminary design, prototype build
and test final design and pilot production, new business development. Top management must
develop an entrepreneurial culture – one that is open to the transfer of new technology into company
must be flexible and accepting change.
e) Evaluation and Control
For innovations to succeed, appropriate evaluation and control techniques must be used to ensure
that the end product is what was originally planned. Some of these techniques are the stage gate
process and the house of quality. Appropriate measures are also needed to evaluate the effectiveness
of the R&D process.
(i) The stage-gate process is used by companies such as IBM, 3M, General Motors, Corning, and P&G.
Corning‘s managers believe that the process enables them to better estimate the potential payback of
any project under consideration. They report that the stage-gate process reduces development time,
allows identification of questionable projects, and increases the ratio of internally generated products
that result in commercially successful products.
(ii) The house of quality is another method of managing new product development. Originally
developed at Mitsubishi‘s Kobe shipyards, it is a tool to help project teams make important design
decisions by getting them to think about what users want and how to get it to them most effectively.
It enhances communication and coordination among engineering, marketing, and manufacturing and
ensures better product/customer fit. House of quality is a matrix that maps customer requirements
against product attributes.
A study of 15 multinational companies with successful R&D operations focused on three measures
of R&D success:
(1) Improving technology transfer from R&D to business units,
(2) Accelerating time to market for new products and processes, and
(3) Institutionalizing cross-functional participation in R&D. The companies participated in basic,
applied, and developmental research activities. The study revealed 13 best practices that all the
companies followed.
Thirteen ―Best Practices‖ for Improving R&D
 Corporate and business unit strategies are well defined and clearly communicated.
 Core technologies are defined and communicated to R&D.
 Investments are made in developing multinational R&D capabilities to tap ideas throughout the world.
 Funding for basic research comes from corporate sources to ensure a long-term focus; funding for
development comes from business units to ensure accountability.
 Basic and applied researches are performed either at a central facility or at a small number of labs, each
focused on a particular discipline of science or technology. Development work is usually performed at
business unit sites.
 Formal, cross-functional teams are created for basic, applied, and developmental projects.
 Formal mechanisms exist for regular interaction among scientists, and between R&D and other functions.
 Analytical tools are used for selecting projects as well as for ongoing project evaluation.
 The transfer of technology to business units is the most important measure of R&D performance.
 Effective measures of career development are in place at all levels of R&D.
 Recruiting of new people is from diverse universities and from other companies when specific experience
or skills are required that would take a long time to develop internally.
 Some basic research is performed internally, but there are also many university and third party
relationships.
 Formal mechanisms are used for monitoring external technological developments.

STRATEGIC ISSUES IN NOT–FOR-PROFIT ORGANIZATIONS

Not-for-profit organization may be
 Private NFPO such as private hospitals, private educational institution, charities, etc and
  Public government agencies such as libraries, universities, and museums.

Nature of NFPO
 Self –help groups and NGOS receive a lot benefits from society
 NFPOS depend heavily on donations from members and from sponsoring agency
 In NFPOS, the beneficiaries don‘t pay fully for the service they receive, hence the need for outside
sponsors.

Application of strategic management concept

 SWOT analysis
 Mission statements
 Stakeholders analysis
 Corporate government
 Industry analysis
 Competitor analysis

Constraints on strategic management

 Service is intangible and difficult is measure
 Beneficiary‘s influence
may be weak
 Sponsors and
contributors
(government) may
interfere with internal
management
 Strong employers are
more committed to
their profession rather
than 15 the
organization
 Reward-punishment
system is under severe
restraints.

Issues in strategy
formulation
 Goal conflict interferes
with rational planning
 Shift from results is
resources
 Goal displacement and
internet politics is
 Professionalism Vs rigidity
Issues in strategy implementation
 Decentralization is complicated
 Linking pins for external – internal integration become important
 Jot enlargement and executive development can be restrained by professionalism.
Issues in evaluation and control
 Rewards and penalties have little or no relation to performance
 Inputs rather than outputs ar4e controlled
 Wastage of money on administrative costs and expenses
Popular strategies of NFPOS
 Strategic piggybacking – New found generation activity undertaken by the NFPO, which is aimed at
reducing the gap between expenses and revenue
Ex: Educational institution running some courses and commercial
 Hospitals running a meditation class and fitness programme
 Merger – NFPOS prefer merger in the light of reduced resources to light down their cost of
operation.
 Strategic alliance – Is pursued by NFPOS to increase their capacity and to get more resources and to
serve the clients letter.
Ex: Indian school of business was started with the support from state
Govt. of A.P.
NEW BUSINESS MODELS AND STRATEGIES FOR THE INTERNET ECONOMY
INTERNET ECONOMY:
The Internet Economy refers to conducting business through markets whose infrastructure is based
on the internet and world-wide web. An internet economy differs from a traditional economy in a
number of ways, including communication, market segmentation, distribution costs and price.
Industry competition in the internet economy
The Impact on Competitive Rivalry
 Use of Internet widens a firms geographic market reach
 Rivalry is often increased by freshly launched e-commerce initiatives of existing rivals
 Rivalry is often increased by entry of enterprising dot-com rivals with sell-direct strategies
 Rivalry is often increased when an industry consists of online sellers against pure brick-and
mortar sellers against combination brick-and-click sellers
The Impact on Barriers to Entry
 Entry barriers into e-commerce are often relatively low
 Can be easy for new dot-coms to gain entry into some businesses
 Can be easy for many existing firms to expand into new geographic markets via online sales
The Impact on Buyer Bargaining Power
 Use of Internet allows buyers to gather extensive information about competing products and
brands
 Buyers can readily use the Internet to ―shop the market‖ for the best deal
 Buyer efforts to seek out the best deal spurs competition among rival sellers to provide the best
deal
 Internet makes it easier for buyers to join buying groups and store their purchases to negotiate
better terms and conditions
Impact on Supplier Bargaining Power
 Helps companies extend geographic reach for the best suppliers
 Sometimes via online marketplaces or ―emarkets‖
 Helps companies collaborate closely with suppliers across a wide front—fosters long-term partnerships
with key suppliers
Impact on threat on substitution of products
Internet fosters the R&D activity which in turn increases the threat of product substitutions.
INTERNET BUSINESS MODELS
The business model spells-out how a company makes money by specifying where it is positioned in
the value chain. The basic categories of business models discussed in the table below include:
a) Brokerage Affiliate
b) Advertising f) Community
c) Infomediary g) Subscription
d) Merchant h) Utility
e) Manufacturer (Direct)
a) Brokerage model
Brokers are market-makers, they bring buyers and sellers together and facilitate transactions.
Brokers play a frequent role in business-to-business (B2B), business-to-consumer (B2C), or
consumer-to- consumer (C2C) markets. Usually a broker charges a fee or commission for each
transaction it enables. The formula for fees can vary. Brokerage models include:
I. Marketplace Exchange: offers a full range of services covering the transaction process,
from market assessment to negotiation and fulfillment. Exchanges operate independently
or are backed by an industry consortium. [Orbitz, ChemConnect]
II. Buy/Sell Fulfillment: takes customer orders to buy or sell a product or service, including
terms like price and delivery. [CarsDirect, Respond.com]
III. Demand Collection System: the patented "name-your-price" model pioneered by
Priceline.com. Prospective buyer makes a final (binding) bid for a specified good or
service, and the broker arranges fulfillment. [Priceline.com]
IV. Auction Broker: conducts auctions for sellers (individuals or merchants). Broker charges
the seller a listing fee and commission scaled with the value of the transaction. Auctions
vary widely in terms of the offering and bidding rules. [eBay]
V. Transaction Broker: provides a third-party payment mechanism for buyers and sellers to
settle a transaction. [PayPal, Escrow.com]
VI. Distributor: is a catalog operation that connects a large number of product manufacturers
with volume and retail buyers. Broker facilitates business transactions between franchised
distributors and their trading partners.
VII. Search Agent: a software agent or "robot" used to search-out the price and availability for
a good or service specified by the buyer, or to locate hard to find information.
VIII. Virtual Marketplace: or virtual mall, a hosting service for online merchants that charges
setup, monthly listing, and/or transaction fees. May also provide automated transaction
and relationship marketing services. [zShops and Merchant Services at Amazon.com]
b) Advertising model
The web advertising model is an extension of the traditional media broadcast model.
The broadcaster, in this case, a web site, provides content (usually, but not
necessarily, for free) and services (like email, IM, blogs) mixed with advertising
messages in the form of banner ads. The banner ads may be the major or sole source
of revenue for the broadcaster. The broadcaster may be a content creator or a
distributor of content created elsewhere. The advertising model works best when the
volume of viewer traffic is large or highly specialized.
I. Portal: usually a search engine that may include varied content or services. A high volume
of user traffic makes advertising profitable and permits further diversification of site
services. A personalized portal allows customization of the interface and content to the
user. A niche portal cultivates a well-defined user demographic. [Yahoo!]
II. Classifieds: list items for sale or wanted for purchase. Listing fees are common, but there
also may be a membership fee. [Monster.com, Craigslist]
III. User Registration: content-based sites that are free to access but require users to register
and provide demographic data. Registration allows inter-session tracking of user surfing
habits and thereby generates data of potential value in targeted advertising campaigns.
[NYTimes]
IV. Query-based Paid Placement: sells favorable link positioning (i.e., sponsored links) or
advertising keyed to particular search terms in a user query, such as Overture's trademark
 "pay-for-performance" model. [Google, Overture]
V. Contextual Advertising / Behavioral Marketing: freeware developers who bundle adware
with their product. For example, a browser extension that automates authentication and
form fill-ins, also delivers advertising links or pop-ups as the user surfs the web.
Contextual advertisers can sell targeted advertising based on an individual user's surfing
activity.
VI. Content-Targeted Advertising: pioneered by Google, it extends the precision of search
advertising to the rest of the web. Google identifies the meaning of a web page and then
automatically delivers relevant ads when a user visits that page. [Google]
VII. Intromercials: animated full-screen ads placed at the entry of a site before a user reaches
the intended content. [CBS MarketWatch]
VIII. Ultramercials: interactive online ads that require the user to respond intermittently in
order to wade through the message before reaching the intended content. [Salon in
cooperation with Mercedes-Benz]
c) Infomediary model
Data about consumers and their consumption habits are valuable, especially when that
information is carefully analyzed and used to target marketing campaigns.
Independently collected data about
producers and their products are useful to consumers when considering a purchase.
Some firms function as infomediaries (information intermediaries) assisting buyers
and/or sellers understand a given market.
I. Advertising Networks: feed banner ads to a network of member sites, thereby enabling
advertisers to deploy large marketing campaigns. Ad networks collect data about web
users that can be used to analyze marketing effectiveness. [DoubleClick]
II. Audience Measurement Services: online audience market research agencies.
[Nielsen//Netratings]
III. Incentive Marketing: customer loyalty program that provides incentives to customers such
as redeemable points or coupons for making purchases from associated retailers. Data
collected about users is sold for targeted advertising. [Coolsavings]
IV. Metamediary: facilitates transactions between buyer and sellers by providing
comprehensive information and ancillary services, without being involved in the actual
exchange of goods or services between the parties. [Edmunds]
d) Merchant model
Wholesalers and retailers of goods and services. Sales may be made based on list
prices or through auction.
I. Virtual Merchant --or e-tailer, is a retail merchant that operates solely over the web.
[Amazon.com]
II. Catalog Merchant: mail-order business with a web-based catalog. Combines mail,
telephone and online ordering. [Lands' End]
III. Click and Mortar: traditional brick-and-mortar retail establishment with web storefront.
[Barnes & Noble]
IV. Bit Vendor: a merchant that deals strictly in digital products and services and, in its
purest form, conductsboth sales and distribution over the web. [Apple iTunes Music
Store]
e) Manufacturer (Direct) model
 The manufacturer or "direct model", it is predicated on the power of the web to allow
a manufacturer (i.e., a company that creates a product or service) to reach buyers
directly and thereby compress the distribution channel. The manufacturer model can
be based on efficiency, improved customer service, and a better understanding of
customer preferences. [Dell Computer]
i. Purchase: the sale of a product in which the right of ownership is transferred to
the buyer.
ii. Lease: in exchange for a rental fee, the buyer receives the right to use the
product under a
―terms of use‖ agreement. The product is returned to the seller upon
expiration or default of the lease agreement. One type of agreement may
include a right of purchase upon expiration of the lease.
iii. License: the sale of a product that involves only the transfer of usage rights to
the buyer, in accordance with a ―terms of use‖ agreement. Ownership rights
remain with the manufacturer (e.g., with software licensing).
iv. Brand Integrated Content: in contrast to the sponsored-content approach (i.e.,
the advertising model), brand-integrated content is created by the manufacturer
itself for the sole basis of product placement.
f) Affiliate model
In contrast to the generalized portal, which seeks to drive a high volume of traffic to
one site, the affiliate model, provides purchase opportunities wherever people may be
surfing. It does this by offering financial incentives (in the form of a percentage of
revenue) to affiliated partner sites. The affiliates provide purchase-point click-through
to the merchant. It is a pay-for-performance model: if an affiliate does not generate
sales, it represents no cost to the merchant. The affiliate model is inherently well-
suited to the web, which explains its popularity. Variations include, banner exchange,
pay-per-click, and revenue sharing programs. [Barnes & Noble, Amazon.com]
i. Banner Exchange: trades banner placement among a network of affiliated sites.
ii. Pay-per-click: site that pays affiliates for a user click-through.
iii. Revenue Sharing: offers a percent-of-sale commission based on a user click-
through in whichthe user subsequently purchases a product.

g) Community model
The viability of the community model is based on user loyalty. Users have a high
investment in both time and emotion. Revenue can be based on the sale of ancillary
products and services or voluntary contributions; or revenue may be tied to contextual
advertising and subscriptions for premium services. The Internet is inherently suited
to community business models and today this is one of the more fertile areas of
development, as seen in rise of social networking.
i. Open Source: software developed collaboratively by a global community of
programmers who share code openly. Instead of licensing code for a fee, open
source relies on revenue generated from related services like systems
integration, product support, tutorials and user documentation. [Red Hat]
ii. Open Content: openly accessible content developed collaboratively by a global
community ofcontributors who work voluntarily. [Wikipedia]
iii. Public Broadcasting: user-supported model used by not-for-profit radio and
television broadcasting extended to the web. A community of users support the
 site through voluntary donations. [The Classical Station (WCPE.org)]
iv. Social Networking Services: sites that provide individuals with the ability to
connect to other individuals along a defined common interest (professional,
hobby, romance). Social networking services can provide opportunities for
contextual advertising and subscriptions for premium services. [Flickr,
Friendster, Orkut]
h) Subscription model
Users are charged a periodic: daily, monthly or annual: fee to subscribe to a
service. It is not uncommon for sites to combine free content with "premium" (i.e.,
subscriber- or member-only) content. Subscription fees are incurred irrespective of
actual usage rates. Subscription andadvertising models are frequently combined.
i. Content Services: provide text, audio, or video content to users who
subscribe for a fee to gain access to the service. [Listen.com, Netflix]
ii. Person-to-Person Networking Services: are conduits for the distribution of
user-submitted information, such as individuals searching for former
schoolmates. [Classmates]
iii. Trust Services: come in the form of membership associations that abide by an
explicit code ofconduct, and in which members pay a subscription fee.
[Truste]
iv. Internet Services Providers: offer network connectivity and related services
on a monthlysubscription. [America Online]
i) Utility model
The utility or "on-demand" model is based on metering usage, or a "pay as you go"
approach. Unlike subscriber services, metered services are based on actual usage
rates. Traditionally, metering has been used for essential services (e.g., electricity
water, long-distance telephone services). Internet service providers (ISPs) in some
parts of the world operate as utilities, charging customers for connection minutes, as
opposed to the subscriber model common in the U.S.
i. Metered Usage: measures and bills users based on actual usage of a service.
ii. Metered Subscriptions: allows subscribers to purchase access to content in metered
portions (e.g., numbers of pages viewed). [Slashdot]
The models are implemented in a variety of ways, as described below with examples.
Moreover, a firm may combine several different models as part of its overall Internet
business strategy. For example, it is not uncommon for content driven businesses to
blend advertising with a subscription model.
Business models have taken on greater importance recently as a form of intellectual
property that can be protected with a patent. Indeed, business models (or more broadly
speaking, "business methods") have fallen increasingly within the realm of patent law.
A number of business method patents relevant to e-commerce have been granted. But
what is new and novel as a business model is not always clear. Some of the more
noteworthy patents may be challenged in the courts.